Surging Demand for Offshore Storage – Explained

Surging Demand for Offshore Storage – Explained

By Jeff Thomas ... 2015-08-28

Jeff Thomas: For the first time in quite a long while, I’m seeing significant changes in what wealth storage facilities are offering clients and changes in what clients are seeking. How do you see that from your perspective as the head of a wealth storage facility?

Mark Yaxley: Well, in terms of the level of demand, certainly it’s increased dramatically, but along with that, we’re seeing a growing lack of faith in banks as a trustworthy wealth storage solution. This is creating a shift toward precious metals storage facilities and it’s also creating a challenge for those facilities to provide better services than in the past. Those facilities that are at the forefront are those that are doing the most to answer the changing needs.

The volume can be attributed largely to the last bull market – from 2005 to 2011 - which resulted in record amounts of physical bullion being purchased by private investors from around the world. Investor demand was truly global. Some of these investors began seeking private storage facilities to safely store their assets and a portion of those, perhaps the more forward-thinking ones, opted to geo-diversify their holdings and store a portion of their metals in offshore facilities.

Since then, banks have become less attractive and even suspect. Last year, US banks began notifying their depositors that cash and precious metals would no longer be acceptable in bank safe deposit boxes. Some investors recognised that they were being pushed by the banks to convert bullion to cash and put cash on deposit. Those who were well-informed were already skittish, as the US, like the EU and Canada, has passed bail-in legislation that allows banks to confiscate depositors’ money. Consequently, many wisely chose to take out their cash and bullion and move it to wealth storage facilities.

JT: And the reason why they would be safer?

MY: It may be legal for the banks to confiscate your money, but it certainly isn’t legal for a wealth storage facility to do it. But, while we’re looking at safety, there’s another advantage to a precious metals depository, as opposed to a bank. The original concept of a bank hundreds of years ago was that they owned a sturdy building with a strong door. You paid them a small amount to store your gold and silver. Later as bankers became investment bankers, they loaned out your money and made profits on the interest. That’s not unfair unless you didn’t want your money lent out – you didn’t want it to be at risk. But today’s banks have gone way over the top with this idea.

Also, banks have begun paying no interest or negative interest rates on deposits, pushing more investors out of savings accounts and towards alternative currencies like gold & silver. The only difference being that savvy clients will not store their metals in a commercial bank. They’ll seek a private depository that specializes in precious metals storage.

A wealth storage facility does what banks originally did – provide you with safe storage. The only transfers in and out are those that are authorised by you. And the best of them don’t deal in paper promises to buy metal in your name. They deal in allocated precious metals, physically stored at the facility.

JT: And, of course, that’s not the only change that’s taken place. Those that are American face an additional threat.

MY: Yes – FATCA. In 2010, the US government introduced a series of intense reporting requirements for global financial institutions. Americans who had reportable assets in foreign financial institutions were directly impacted, and in some cases, were asked politely to withdraw their assets by the foreign financial institutions who became subject to these new reporting requirements. But gold and silver, if it’s held in a storage facility instead of being on deposit in a bank, is not even legally reportable.

JT: And just when holders of bank accounts felt that nothing could be any worse, capital controls were added to the mix.

MY: Yes – hard to imagine that it could be any worse, but governments, with the aid of banks, are now implementing stringent controls on cash deposits, withdrawals and payments. France made headlines in March when they lowered their maximum acceptable cash payment amount to $1,000 Euros per transaction and any cumulative withdrawals of $10,000 Euros per month will now be reported. They claim these actions were taken to fight low-cost terrorism and I quote, "fight against the use of cash and anonymity.” What they fail to realize is that many citizens of the world, largely honest, hard-working people who have no affiliation to terrorism, place tremendous value on their anonymity and privacy.

JT: Well I doubt if they actually believe that claim themselves, but they had to come up with some excuse to justify imposing such a draconian restriction on people being able to have free access to their own money. No surprise then, which wealth storage facilities are coming to the forefront more than ever before.

The question in the mind of an investor becomes “What’s the most ideal way to preserve wealth now?” The answer to that question is that he should aim for the greatest likelihood of wealth preservation. He should create a checklist to preserve his wealth.

MY: Ideally, that checklist should include the selection of an ideal jurisdiction, based on proximity, stability, security, a history of investor friendliness, freedom from taxes and tariffs, and, of course, home to world class facility.

JT: I notice that you place the choice of facility itself last on the list. Understandably, those who run such facilities tend to talk primarily about the attributes of the facility. Forgive me, but, for me, that concern is secondary to the attributes of the jurisdiction that it’s in.

MY: I agree. That’s the order of reason the investor should be employing. I like to toot my own horn too, but the fact is, no matter how good a facility is, if it’s located in a jurisdiction that’s at risk of capital controls, it should be avoided. You could have a top-class facility in, say, Delaware, or Vancouver, but the risks that exist in the jurisdiction itself make the depositor the low-hanging fruit to his government. By all means, first pick the most promising jurisdiction you can, then select the best storage facility in that jurisdiction.

JT: When advising investors, I suggest that they look for one or more jurisdictions where there’s a low-tax, or preferably no-tax policy; where the government has a history for stability and that they’re known for a minimum of interference and intrusion into the financial affairs of their residents and others.

MY: Traditionally, that meant Switzerland. But in recent years, Hong Kong and Singapore have been even better in many ways. But, in your list, you left out one factor that I consider just as important, which is proximity. My top choice could be Singapore, but it’s halfway around the world. If I want to inspect my physical gold and silver, or add to it, I want a jurisdiction that’s within easy reach. For those who live in the Western Hemisphere, there are several possibilities – Bermuda, the BVI, the Bahamas, but the only jurisdiction that ticks all the boxes as you’ve listed them is the Cayman Islands. Cayman didn’t become the world’s fifth largest financial centre by accident. It did so by being more thorough in answering all the needs of investors than any other jurisdiction in the West.

JT: It’s interesting that, after decades of being a world leader as a financial centre and, as you say, checking nearly every box, no one on Cayman had created a wealth storage facility.

MY: Yes – quite surprising, particularly as Cayman law was already ideal to assure the viability of a storage facility. There’s no tax on precious metals of any kind in Cayman – not on the possession and not on the sale, or capital gains. And there’s no reporting to the Caymanian government on the ownership, sale, importation, exportation, etc. Cayman has a history of absolute freedom with regard to precious metal ownership – a 500-year history, with never a law taxing, regulating or restricting precious metals.

JT: I’m aware of a few attempts at creating such a facility, but, over the years, I visited each one and was invariably unimpressed. People who buy precious metals have a different mind-set toward it than other commodities. It represents wealth preservation more than profit potential. Those who have sought to create precious metals facilities have often failed to understand that mind-set, even on Cayman. Your company, Strategic Wealth Preservation (SWP) was the first that really “got it.”

MY: SWP was years in the planning stages. The objective was to create a facility that took the very best from the top facilities around the world and combine them. I don’t mean just the physical facilities, such as a Grade III vault, although that was essential in our plans, but, as the industry is changing, each top facility out there has one or more policies that make it a top choice. We took the best from each of those, and included them in our contracts. We set out to make SWP no less than the best choice for a wealth depository in the Western Hemisphere.

We provide investors with a fully integrated service, from the acquisition of metals, to the allocated and segregated storage of those metals, complemented by comprehensive insurance and monthly reporting to the client. We’re finding that what our clients favor most is that they’re welcomed to physically inspect their wealth with only 24-hour notice and that, if they wish to make a purchase – either a large one or a small one – some of the world’s most prominent suppliers also store with us, so clients can make their purchases from wherever they are in the world. The metals are then moved from the supplier’s box to the client’s box the same day. There are no risks or delays due to shipment.

JT: In advising people on internationalisation, I recommend to investors that, if they can, it’s always an advantage to diversify and, if possible, choose three depositories in three different jurisdictions, in case a problem might develop in one of them. I do, however, sometimes suggest that an investor have only one, if his investment is small, or if he needs the geographical location to be easily accessible. Cayman is a sovereign nation, outside of the control of its neighbours, yet it’s just one hour from the US by jet.

MY: I tend to offer the same advice. Diversify if you can. There are a number of excellent facilities out there; SWP is only one of them. I always advise our clients that it’s best to store metals in several facilities, and in some cases, domestically as well as offshore. One of the fundamental reasons of owning precious metals is diversification, and therefore, geo-diversification provides the greatest insurance. The economic world is changing dramatically, and not for the better. Above all, seek to preserve your wealth in the best ways possible.